BIR sets stricter audit on firms
MANILA, Philippines – Corporations may soon be subject to a transfer pricing audit, a new type of tax audit, from the Bureau of Internal Revenue (BIR).
Transfer pricing is used to describe inter-company pricing arrangements relating to transactions between related entities. These can include transfers of intellectual property, tangible goods, services and loans or other financing transactions.
According to auditing firms, global tax authorities are imposing stricter penalties and carrying out intensive audits among companies.
As such, Quantera Global, a global transfer pricing advisory firm sees BIR examiners implementing transfer pricing audit following the BIR’s move to include transfer pricing issues as a major criteria for its priority taxpayers.
“Tax audits in the Philippines may soon be seeing some changes…From now on, a new term may find itself commonly mentioned among BIR examiners as well as finance executives’ and in tax practitioners’ circles,” Quantera Global said.
“Transfer pricing audit will be an oft-repeated phrase in this and future years, as the BIR formally includes “transfer pricing issues” as one of the 29 criteria for Priority Taxpayers/Industries in the latest BIR audit program,” Quanter Global added.
It noted that the priority list of the BIR’s current audit program is “heavy” on transfer pricing and indicates that the BIR is determined to enforce the Philippine transfer pricing rules…as part of ongoing tax collection efforts
Priority industries that may be subjected to transfer pricing audit include real estate, telecommunications, e-commerce, hospitals, clinics and laboratories, amusement and entertainment, advertising agencies, BPOs, insurance companies and food companies.It noted that the priority list of the BIR’s current audit program is “heavy” on transfer pricing and indicates that the BIR is determined to enforce the Philippine transfer pricing rules…as part of ongoing tax collection efforts.
Among the criteria that would potentially lead a normal tax audit into a transfer pricing audit are taxpayers enjoying tax exemptions and Incentives, taxpayers reporting gross/net loss or no taxable income or no tax due for two consecutive years, taxpayers with income tax due of less than two percent of gross sales/revenues, and taxpayers with increase of assets of more than 50 percent from the previous year but with reported net loss.
Others that may be covered by the new rules include taxpayers deriving its revenue/income exclusively or substantially from its parent company/subsidiaries/affiliates and taxpayers with shared expenses and other inter-related charges being imputed by a parent company to its affiliates and likewise an affiliate to other affiliate in a conglomerate, and taxpayers with zero-rated sales.
“Additionally, Philippine companies should be mindful of the criteria for Priority taxpayers/Industries of RMO 19-2015 and to take steps to minimize the chances of being classified as taxpayers at ‘high risk’ for selection for a transfer pricing audit,” Quantera Global said.
